2030 Finance | November 21, 2017

Climate action is China’s chance to step up to superpower leadership

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China has left the global climate talks in Bonn as the new “indispensable nation.”

The world’s biggest polluter is also the world’s biggest driver of cheap, clean energy, making China the country that can make or break not only the Paris climate agreement, but the whole global effort to avert the worst of the coming climate catastrophes.

If the COP23 climate talks just ended are remembered as a Tale of Two Americas, so too was there a Tale of Two Chinas.

In the U.S. a network of cities, states and corporations, on display in Bonn, is eager to wrestle the challenges of decarbonization to the ground, even as the U.S. officially moves to pull out of the climate agreement. The official delegation sent by President Trump was keen to ‘level the playing field’ in favor of coal and nuclear energy.

China is also split, between a national industrial policy that has prioritized clean energy, and a reliance on fossil fuels — and particularly coal — that remain vital to the country’s energy supplies.


China, once the adversarial player, entered this year’s climate talks with newfound pride. China impressed by overachieving its climate targets by almost a decade. In its 2015 “nationally determined contribution,” it had promised its greenhouse gas emissions would peak by 2030. New figures show that they are already starting to decline.

A new report by the UN Environment Inquiry captures the landscape of China’s burgeoning green finance sector. The country recorded $11.7 billion worth of green bonds in the first half of 2017 alone. By June this year, almost 8,000 low-carbon projects were underway, worth a total investment of nearly $1 trillion.

Asserting itself as a global climate champion casts its growing global clout in a positive light, while expanding its financial and political power. As clean energy becomes the low-cost option around the world, China is driving a renewable-energy buildout that could blow out all forecasts.

But when it comes to energy supplies, China wants “all of the above” for a voracious economy. Its ambitious “Belt and Road” infrastructure initiative spreads coal technologies and facilitates the circulation of fossil fuels through the upgrading of ports and corridors, such as Gwadar in Pakistan. With most projects still in progress or in the design phase, there is still no definitive answer on whether or not China will drive a “green” transition in the developing world.

According to the latest World Energy Outlook report compiled by the International Energy Agency, China accounts for around half of global coal production and consumption. It’s the world’s largest importer of oil.

Past and present dependence on high-carbon industry and transport technologies has caused a public health crisis. Pollution remains at dangerous levels in major cities such as Beijing and Shanghai. The troubled love-hate relationship between the Chinese industry and dirty energy sources is far from settled.

According to a newly released report from the Global Carbon Project, the country’s emissions are likely to rise again, after three years of declining or flatlining, by an average of 3.5%. Analysts at the Climate Action Tracker think tank label China’s progress as “highly insufficient” to meet the Paris Target of limiting global warming to 1.5 degrees.

Markets and infrastructure

The Chinese delegation came to Bonn determined to seek new partnerships and fill gaps in key areas, such as emission trading and energy investments along the Belt and Road countries.

The emission trading scheme was expected to be launched at COP23, but the goalposts have now moved. According to analysts in Bonn, the plan may be unveiled early next year. It is poised to be the world’s most ambitious attempt to put a price on carbon, drawing from past experiences in the EU, provinces of Canada and California.

It is still uncertain which sectors and regions will be covered by the trading scheme, at least initially. Coordination between the regions and the central government is proving challenging.

The collection of emissions data is one first hurdle that could hold back the plan. Double-counting by public and private entities that work together on a project and both count their emission savings against their individual targets, is a serious risk that spooks investors, said Dirk Forrister, president and CEO of the International Emissions Trading Association.

China, he said, “understands the importance of quality data,” he said, and is vetting data from the provinces to establish a high-quality baseline. “It’s a massive undertaking”.

Harmonizing data collection and creating a coherent monitoring system may be a logistic nightmare, but China is investing heavily to make the low carbon transition happen.

Leadership vacuum

With the U.S. stepping away from climate-action leadership, China has stepped up.

The World Energy Outlook shows a slow but consistent decline in coal production in China, replaced by natural gas and nuclear power. The country hosts 40% of nuclear power plants under construction in the world. Earlier this year, China released its climate change update report showing how it reduced its emission and reliance of fossil fuels faster than expected.

Beyond an overall peak in emissions, China’s climate goals include a 40% reduction of the economy’s carbon intensity, or emissions per unit of GDP below 2005 levels. China also planned to increase the share of non-fossil fuels in primary energy consumption to 15% (up from 9.4% in 2010), and to increase the volume and coverage of its forests by 2030.

“The Chinese government is shutting down inefficient power plants and primitive coal mines,” said Fatih Birol, executive director of the International Energy Agency, in Bonn to present the latest World Energy Outlook report. The shutdowns are not necessarily done for climate-change reasons. “Tackling local pollution is also very important for those countries.”

Green belt?

China’s economic growth has been slowing over the past decade. A modern version of the ancient Silk Road, which now connects nearly 70 nations for a value-chain of nearly $1 trillion, enables China to export its productive capacity, opening up new global markets for its companies

The new Silk Road comprises maritime and terrestrial corridors which come with investments in infrastructure, agriculture and energy in the host countries. Developing countries also offer a range of other advantages to Chinese investors: lax regulations, cheap labour and local partners that are keen to break free from the aid system and talk business.

Although its blueprint hints at the development of a “green” Belt and Road, the risk that in a deregulated environment big private companies will forget about the Paris voluntary climate targets is high. NGOs and civil society are taking action to prevent the problem before it arises.

“I think fossil fuels and renewable deployment are interlinked, it’s not either-or” said Hongyu Guo, program manager with the NGO Greenovation Hub, which works to make sure that climate smart practices are enshrined in the Belt and Road’s architecture.

Guo said that China is focusing on the developing world in particular in order to bring the global community up to speed with the climate challenge. “We think that the SDGs and the Paris Agreement are a compass that can guide China’s foreign investments” she said. “That’s because every country works to reduce its emissions under the same framework. China should progressively bring its foreign investments in line with each host country’s growing ambition.”